Douglas Holtz-Eakin: Is Forgiving Student Debt Good Education Policy?

Allison Edwards

In this morning’s Daily Dish, AAF President Douglas Holtz-Eakin considers Senator Bernie Sanders’ proposal to cancel the $1.6 trillion in existing student debt. Holtz-Eakin argues that the incentives to borrow are badly skewed if one expects a future debt to be forgiven. Further, canceling student debt will not make the United States more skilled or competitive.

An excerpt:

The debt-cancellation policy is combined with a free college initiative that brings the total price tag to $2.2 trillion. Sanders proposes to pay for his plan with a tax on “Wall Street speculators who nearly destroyed the economy a decade ago.” In fact, his “speculators” tax is just a financial transactions tax. Since there is no way to identify speculative versus non-speculative trades, this tax just promises to damage trading incentives across the board. Wall Street is, of course, easy to pick on. But the more general question that demands to be answered is: Why should any taxpayers pick up the tab for this giveaway?

After all, forgiving past debts is a highly ineffective education policy. It does nothing about the future. Making college free for students does not reduce the cost of college. Where is a proposal that will produce genuine competitive pressures on tuition and fees? That would be a higher-education policy worth pursuing.